Oreo Corporation Has Accumulated E&P of $8,000 at the Beginning

question 3

Multiple Choice

Oreo Corporation has accumulated E&P of $8,000 at the beginning of the current year. During the year (a nonleap year) , the corporation incurs a current E&P deficit of $18,250. The corporation distributes $11,000 on March 20th to Morris, its sole shareholder, who has a $9,000 basis for his stock. If the exact loss cannot be determined as of the date of distribution, the treatment of the distribution will be

• A) $11,000 return of capital.
• B) $4,100 dividend and a $6,900 tax free return of capital.
• C) $8,000 dividend and a $3,000 return of capital.
• D) $4,100 dividend and a $6,900 capital gain.

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Definitions:

Factor Market

The factor market is the marketplace for the services of factors of production (labor, capital, land, and entrepreneurship) where these services are bought and sold.

Marginal Product

The increase in output that results from employing one more unit of a production factor, holding all other factors constant.

Income Distribution

How a nation’s total GDP is distributed amongst its population.

Income Effect

Refers to the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.